SINGAPORE: The Singapore dollar hit a record high and the Malaysian ringgit broke through a key resistance level on Tuesday, leading Asian currencies higher, as investors feared that squabbling US politicians will not be able to agree on a debt ceiling deal in time to avoid a default.
Tuesday, 26 July 2011 16:22
US President Barack Obama, in a prime-time address to the nation, warned that failure to raise the US borrowing limit by Aug 2 would severely hurt the country, but Republicans and Democrats remained deadlocked over competing plans to increase the ceiling and cut future spending.
The political impasse may lead rating agencies to lower US credit ratings, prompting leveraged funds and interbank speculators to add exposure in emerging Asian currencies.
On Monday, short-term players trimmed positions in the regional units on worries that the deadlock and possible US downgrades may cause investors to shun risker assets in general.
But that did not hurt Asian currencies' bullish trend, dealers and analysts said.
"If the debt ceiling is not passed, we will continue to see demand for Asian assets due to strong fundamentals," said Kenneth Kan, head of emerging markets forex trading at Credit Agricole Corporate and Investment Bank in Singapore.
"And if the debt ceiling is passed next week, the surge in risk appetite will also spur USD selling against most of the Asian currencies."
Emerging Asian currencies have enjoyed inflows to the region on stronger economic fundamentals and policymakers' inflation fighting efforts.
Singapore wealth fund GIC said longer-term concerns over fiscal strains in the US and Europe were prompting it to shift more money into emerging markets such as China, Taiwan, South Korea and India.
Though some Asian currencies are showing technical signs of being overbought, corrections from position adjustments were not that severe yet.
Still, regional foreign exchange authorities are expected to continue intervening to slow down gains in their currencies, dealers and analysts said. Some authorities were spotted buying dollars on Tuesday, they added.
"The US dollar is decisively weak but risk (appetite) is weak, too," said Andy Ji, Asian currency strategist at Commonwealth Bank of Australia in Singapore.
"USD/AXJs continue to be heavy but it will be a slow grind down with both risk aversion and central banks supporting from the downside."
The Singapore dollar hit a fresh record high as investors increased their bets that the Monetary Authority of Singapore (MAS) will accommodate a stronger currency to curb inflation.
The Singapore dollar nominal effective exchange rate has stayed persistently high at above 3.50 percent, above the middle of the assumed MAS band, but the authority's interventions to check its gains are deemed only attempts to smooth volatility.
Agent banks were spotted buying the greenback at 1.2040, dealers said.
The ringgit bolted through technical resistance as investors continued to build up dollar-short positions and on lack of intervention by the central bank.
Absence of intervention also provided more selling pressure in Singapore dollar/ringgit.
The Malaysian currency appreciated to as high as 2.9530 per dollar, according to dealers, breaking through resistance at 2.9600.
If that level had been held, that would have created a double bottom formation on the daily chart.
"People are comfortable in short dollar/ringgit and nobody is long. Nothing will make dollar stronger," said a Kuala Lumpur-based dealer.
The 14-day dollar/ringgit Relative Strength Index (RSI) fell more to 20.9, crossing the 30 threshold and indicating the pair is in oversold terrAFP
The won got closer to a near three-year high against the dollar hit on Friday, helped by exporters' end-month demand and as local speculators reduced dollar-long positions.
South Korea foreign exchange authorities, which had not been spotted most of the day, were suspected of buying dollars last minutes to defend 1,050 per dollar before the local market closed, dealers said.
Their intervention was not seen as strong as action last Friday, but today's move increased caution over further intervention, they added.
"For now, it looks more difficult to break through 1,050," said a foreign bank dealer in Seoul.
On Friday, the authorities were spotted buying an estimated$500 million-$1 billion to defend the 1,050 level, according to dealers.
The Philippine peso found strong support from leveraged funds and interbank speculators, though the central bank was spotted buying dollars to stem its strength.
Earlier, Standard Chartered said it buys the peso versus a 50/50 basket of the dollar and the euro, adding USD/PHP's short-term momentum indicators are bearish while euro/peso's short-term indicators appear to be rolling over.
StanChart expects the peso and the Thai baht to catch up with strong performance in other emerging Asian currencies.
It said in a note that real money funds are underexposed to the Philippines and short-dollar/peso positions are seen only modest.
Copyright Reuters, 2011